Competition/Antitrust Challenges in Technology Aftermarkets
BELL R., KRAMER J., Competition/Antitrust Challenges in Technology Aftermarkets, Bryan Cave - EU & Competition Law, 05.03.2015
|Abstract|| Aftermarkets are particularly important to manufacturers of complex technical equipment. The downstream market for maintenance and support of both hardware and software is highly profitable and particularly coveted by proprietary equipment manufacturers, often as a means to recoup their substantial investments in research and development. In many cases these markets are contested by independent service organisations (“ISOs”), which frequently come into conflict with the manufacturers.
In this short article we provide a critical assessment of how US and EU Courts and regulators have developed their thinking on aftermarket issues.
While there are differences between the way US antitrust and EU competition law is applied, particularly to restrictive agreements, the economic principles set out in the leading US case of Kodak, described below, are widely followed on both sides of the Atlantic.
US antitrust and EU competition laws allow independent service organisations to challenge manufacturers’ conduct in aftermarkets, but only in certain limited circumstances. Although there are no shortage of disputes in this area, ISOs have historically struggled to successfully make their case for judicial and regulatory intervention due to the high legal bar set for establishing exploitative behaviour in aftermarkets.
"In Pelikan v. Kyocera (1995) [...], Pelikan claimed that Kyocera was dominant in the market for Kyocera-compatible toner consumables. Kyocera, however, had no significant market power in the relevant printer market. In rejecting Pelikan’s claim, the Commission concluded that the printer market and the consumables market were a single market, as competition in the printer market (the primary market) resulted in effective discipline in the consumables market (the secondary market). In particular, the Commission noted that: (i) consumers were able to make an informed choice, including life-cycle pricing, and (ii) a sufficient number of customers would alter their purchasing behaviour in the primary market in the event of an apparent policy of exploitation in the secondary market. This was because the capital cost of buying a new printer and switching to another make was low." See also Competition Policy: Theory and Practice.
"The EU cases show that the Kodak principles are alive and well and actively adhered to by EU and national competition regulators.
ISOs [independent service organizations] are unlikely to prevail in any case in the EU if they are unable to prove that purchasers are locked into proprietary equipment through high switching costs and an inability to determine whole life cost at time of purchase.
However, from the EU cases, you can deduce certain types of equipment which are more likely to ground successful ISO claims:
- Equipment with high capital acquisition costs which will make switching costs punitive (Digital)." But "[e]quipment like printers and photocopiers are likely to be seen as low value items unlikely to inhibit switching (Pelican/Kyocera).
- Equipment for which the manufacturer is ceasing to produce a new version and will be exiting the primary market, likely removing the manufacturer’s incentive to price competitively in secondary markets (Synstar/ICL).
In contrast, the beneficial treatment accorded to aftermarket restrictions in purchase contracts under US antitrust laws is unlikely to be well received in the EU. Such clauses are likely to be seen as contractual tying obligations which are likely to infringe Article 101(1) TFEU. These clauses are likely to be condemned as unlawful, even if the parties are not in a dominant position and notwithstanding the fact the customer may at the time of purchase agree to the lock in."